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As an investor, you just bought 200 shares of ABC at $20/ share. Ignore brokerage commission. You chipped in $2500 yourself, and borrowed the rest
As an investor, you just bought 200 shares of ABC at $20/ share. Ignore brokerage commission. You chipped in $2500 yourself, and borrowed the rest from your broker. Nothing else is on your account. Please label your answers 1-5. 1. Suppose you sell the 200 shares of ABC when its price appreciates 20% and pay off your broker. If the interest payment for this time period is $100, what is the return (in \%, on your investment? 2. Suppose you are forced to sell the 200 shares of ABC when its price depreciates 20% from the original $20 /share. If the interest payment for this time period is $100, what is the return on your investment? 3. What does the answers from 1. and 2. say about buying on margin? 4. Suppose instead of buying 200 shares of ABC at \$20/share, you shorted 200 shares at $20/ share. You had $2500 cash on the account and nothing else. When will you more likely to get a margin call from your broker, ABC 's price goes up to a certain level or goes down to a certain level? 5. Continue from 4., even if your margin stays above the required maintenance level, can your broker still call you to cover your short position? Why? Explain
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